As employers continue to adapt their workforce models, including the use of gig workers and independent contractors, it's important to understand how these arrangements intersect with Affordable Care Act (ACA) compliance responsibilities.
ACA Rules Apply to Employees, Not Contractors
The ACA’s employer mandate applies to Applicable Large Employers (ALEs), defined as organizations with 50 or more full-time employees (or full-time equivalents). ALEs must offer Minimum Essential Coverage to at least 95 percent of their full-time employees and dependent children or face potential penalties.
Gig workers, however, are usually classified as independent contractors rather than common law employees. This means they are not included in the employer’s ACA headcount and are not required to be offered coverage. The ACA only requires offers of coverage to common law employees, so employers using gig workers are generally not subject to additional ACA responsibilities due to their use of contractors.
Beware of Misclassification Risks
Where ACA compliance can become tricky is in the classification itself. If an individual is treated like an employee but classified as a contractor, the IRS or Department of Labor may determine that the worker is actually a common law employee. This can affect the employer’s ALE status and coverage offer requirements.
To avoid misclassification:
- Clearly define contractor roles and responsibilities
- Avoid directing, supervising, or setting schedules like you would for employees
- Retain documentation supporting the classification decision
Reporting and IRS Forms
Employers only file Forms 1095-C and 1094-C for common law employees. Gig workers do not receive ACA reporting forms from your organization, and their hours are not included in full-time employee calculations.
Gig Workers and the Marketplace
Since gig workers typically do not have access to employer-sponsored coverage, many obtain health insurance through the ACA Marketplace. Depending on income, they may qualify for premium tax credits. Employers should avoid reimbursing Marketplace premiums unless doing so through a compliant arrangement such as a Qualified Small Employer HRA (QSEHRA) or Individual Coverage HRA (ICHRA).
Best Practices for HR
- Conduct regular audits of worker classifications
- Provide training for managers on proper use of contractors
- Consult legal or compliance professionals when workforce models change
- Monitor legislative changes that may impact independent contractor rules
The growth of the gig economy brings flexibility, but also potential compliance complexity. Staying on top of ACA rules is essential to reducing risk and protecting your organization from penalties.
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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.
